In turbulent economic times, the need to streamline businesses and control costs is always of paramount importance. This is true whether your
strategic mission is to be a low-cost producer or an innovator in your industry. Top executives have often turned to Supply Chain Management in an attempt to achieve these goals. But how do you get past the rhetoric of Supply Chain Management theory that so often is populated with clichés and little real-world action?
The solution is not to focus simply on the theory or tactics of Supply Chain Management. These are well known. Rather, we must also think in terms of Supply Change Management - where Change Management principles and initiatives provide the keys to successful implementation of a new supply chain strategy by changing the behavior of organizations and individuals.
Tenets of the Supply Chain
The supply chain encompasses the business, capital, material, and information associated with the flow of goods. The total supply and demand
chain extends from natural resources through a network of value-added steps, including innovation, customer management, and distribution links, until it reaches the ultimate consumer. Supply Chain Management is the technology-based ability to oversee every link in the chain.
But what is the ultimate goal of Supply Change Management? It is optimizing an organization's return-on-assets (ROA). In simple terms, we want to increase revenues while minimizing our product costs and operating expenses -- at the same time we want to significantly reduce the amount of assets, particularly inventory, necessary to support the business.
Specifically, the advantages of Supply Chain Management theory include utilizing measurement systems to:
Increase speed with responsiveness
Produce faster time-to-market
Approach goal of zero defects
Become more profitable
Every year, businesses lose billions of dollars through waste, inefficiency and lost customer satisfaction due to missed orders, late deliveries, high prices, and inconsistent quality. Today's ultra-competitive business environment no longer tolerates this. The key is to control top-to-bottom
operations through efficient supply chain management, implementing the right technological solutions, and the reordering of business processes.
In other words, the goal is to deliver the right product to the right customer at the right time with the right price and quality. But this cannot be accomplished solely through technological innovations and Business Process Reengineering, you must also change the behavior and the culture of the organization and the people involved. It demands the rethinking of everyone concerned with the supply chain in the enterprise.
The Pharmaceutical Industry
While Supply Change Management thinking can be applied in any industry, the pharmaceutical industry is especially suitable for implementation. In spite of pressures to control costs, soaring R&D and marketing expenditures, and widespread criticism of high drug prices, this industry has not sufficiently embraced Supply Change Management. The need to improve inventory turnover is another urgent incentive. However, recently the focus in pharmaceuticals has been more on increasing revenue rather than cutting costs, but today's environment and conditions in the industry require a different strategy and
On the technological side, the utilization of trading networks for procurement can also provide a major advantage. Trading networks, also
called e-marketplaces or e-exchanges, are secure online marketplaces that bring together buyers and sellers in a common vertical industry to facilitate the real-time transfer of information, raw materials, and other goods and services.
Today's information systems technology has made great strides to help companies rapidly react to customers while optimizing all related assets.
In fact, it's never been more critical to optimize responsiveness to customers while minimizing your cost structure, building your competitive
edge, and maximizing your ROA.
Streamlining procurement via trading networks can control costs, increase profitability, improve customer service, and reduce inventories. But this does not come without challenges, including:
Dealing with the volatility of demand
Providing customized solutions for consumers and customers
Managing material flow up to and including the store shelf
Maintaining a level of trust between partners
Change Management: Supporting Implementation for Success
As was mentioned above, the successful implementation of any supply chain improvement process requires change management capabilities and initiatives. This translates into the making of changes in a planned and methodical fashion with the goal of effectively implementing new methods and systems in an ongoing enterprise.
Briefly, a change management initiative can be best described as a problem-solving process - moving from the problem state to the desired
solution state - with an impact on methods, systems and behavior. [I prefer to think of problems in terms of "opportunities for improvement."] The key to such an initiative is measurement -- what gets measured gets
improved -- and performance measures dictate behavior.
To achieve the desired state in a Supply Change Management process the need for change and the related problem/opportunity diagnosis and analysis must be agreed upon and generally acknowledged as essential. Then this agreement must be effectively communicated by the organization's top leadership to all of the stakeholders involved in the initiative - both inside and outside the organization.
Then next step is to set agreed upon goals to reach the desired state among the stakeholders at various levels, areas, and functions. Ends and means must be discussed and coordinated among the various groups - this requires careful planning to obtain buy-in, management support, and leadership commitment. Again, effective communication and related changes to reward
programs and motivational strategies are crucial. The result is a transition from one state to another in a planned and orderly manner.
While this is a somewhat rudimentary description, implementing any Supply Change Management process can be difficult, requiring a major investment in time and money - but, as they say, "no pain/no gain."
An Example of Cultural Change
When I managed the combination of the supply chains of two large food companies during their merger, the need for the Change Management part of Supply Change Management became obvious. We were dealing with two very distinct cultures at the two organizations -- one had been a successful enterprise for more than 100 years while the other was younger and more
In addition, the entire packaged foods business was facing increasing pressure from very low margins, powerful retailers like WalMart, and a
general lack of innovation in the industry. Also, many redundancies due to the merger had to be addressed.
The overall goal of the Supply Change Management process was to combine and
streamline the two supply chains and to make the culture of the combined organization more entrepreneurial. By analyzing the current supply chain from the top down to the shop floor of every plant - and logging more than 100,000 miles in the process - I was able to measure and improve the
productivity, efficiency, customer service, quality, and safety records of the chain - and significantly decrease costs - by establishing joint work teams and using simple measurements to meet easy-to-understand goals.
The result was to get the people from the two merged organizations to think differently, not rely on old supplier relationships, use outsourcing more, streamline their processes, and buy more raw materials centrally. Another very effective initiative was to link compensation and rewards to cost savings and to improve the skills of employees at all levels through increased training and education programs.
The implementation of a supply chain improvement process via Supply Change Management is the key to the success of the process. The requirements of a Supply Change Management initiative include employee support and training
with associated commitment from top management. While these requirements
will not be easy to obtain, the rewards can be immense.
I like to sum it up the following way:
A VISION without EFFORT = WASTE
AN EFFORT without VISION = A DREAM
A VISION plus EFFORT = SUCCESS
In the end, Supply Change Management will enhance your company's ability to anticipate your customers' needs, control costs, and improve profitability. You will be able to look into your supply chain and determine, with unprecedented accuracy, what you need to build, when you need to build it, and how to optimize for key mnagement goals. You'll be able to synchronize material and capacity requirements to the demands of your customers with a dramatic impact on your bottom line.
How well you implement Supply Change Management and also utilize technology
will determine how much you'll be able to increase ROA as well as your competitiveness in the marketplace -- and how much business you'll take away from your rivals.